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Buy vs. Lease
Should You Buy or Lease a Mercedes-Benz?
J. Paul Getty (billionaire American industrialist) famously said, "If it appreciates, buy it. If it depreciates, lease it." When it comes to automobiles, this advice is every bit as apt.
After several years of decline, more folks are choosing to lease their latest vehicle. So what is driving the uptick in leasing? First, interest rates factored into lease payments are low. Leasing also provides an alternative to purchasing that, over the short term, provides a lower monthly payment and frees up more cash. Also, since leasing numbers have been down considerably, the supply of used cars coming off of lease is tight, meaning that used cars are more expensive. As such, leasing might be a better option until used car supplies increase as projected in a few years.
There are several advantages to leasing, many of which may make it a more appealing option than purchasing.
These benefits include:
Less cash upfront:Most leases require a small down payment, and some require no down payment at all. This makes getting into a new car more attainable for cash-strapped buyers, and it helps free up your nest egg for other important expenditures or further saving.
Lower monthly payments:Because you're only paying for the portion of the vehicle that you actually use, your monthly payments can be more than 30 percent lower than what you would pay every month were you purchasing the same vehicle.
More car, more often:Because your lease is ostensibly payment for use of a vehicle for a limited amount of time, leasing means that you have the option to upgrade to a new car every two to four years, depending on the length of your lease. Most leases now have a “sweet spot” of 24 to 36 months, meaning you will not have long to wait if you want the latest vehicle on the market.
Lower total maintenance costs:Many people lease for a term that is equal to or less than the length of the manufacturer's warranty. This ensures the vehicle is always covered under the warranty. You may also opt to include pre-paid maintenance of regular services with the lease, spreading the cost over the full lease period.
End of Lease Options: With leasing, the headaches of selling a used car are eliminated. When your lease ends, you can simply return it to the leasing company and walk away. If you love the vehicle and want to keep it, you can opt to buy it at a price that was determined at time of lease (the residual), allowing you to plan ahead for your purchase. Depending on your financial situation, you may also be able to extend the term of your lease (subject to restrictions and conditions – inquire with your sales professional).
Leasing Pros, Cons and Myths
Let's take a look at the pros, cons and myths of leasing so you can make the best decision for your situation and circumstances.
New car, all the time: Leasing a car means you get to drive around in a sweet new ride without paying the not-so-sweet new-ride payment. For many people, this is a confidence boost that can’t be ignored. If you love cars and driving, this is a big perk.
The latest safety and technology without the down payments: Can you imagine still having the flip phone or bar phone you had even five years ago? Of course not. Cars are changing all the time too. Leasing allows you to stay current with features like Blind Spot Assist™, Hands-free Bluetooth telephone capability, Collision Prevention Assist Plus™, Lane Keeping Assist™, and more – all without having large down payments and depreciation to consider for each change of vehicle.
Fewer maintenance issues: Because you’re driving a newer car, you usually don’t have to deal with the regular maintenance issues that car owners face as their vehicles age. With a 24- or 36-month lease, you will most likely turn in your car before any of those problems start showing up (e.g. bad brakes, broken shocks, worn belts and batteries). If you lead a very busy life, or if you’re on the road a lot, this is one less stress you will have to deal with.
Leases are tax deductible for small businesses: If you’re self-employed or you own a business, you can write off your lease as a business expense. Ask your accountant or tax advisor for specific advice for your situation.
“Afford” a nicer car: If you’ve ever wondered how it is that so many people can afford to drive BMWs and Range Rovers, then wonder no more. According to LeaseGuide.com, around 75% of all luxury cars are leased, not owned. The reason is that banks generally don’t like to provide more than $30,000 for a car loan, which puts luxury automobiles outside the budget of most who have to borrow for purchases. If you want a car worth more than $30k and don’t have the money to make up the difference, leasing may be your only option. Leasing allows you to enjoy luxurious amenities without the exorbitant cost.
Few upfront costs: Speaking of costs, leasing allows you to get into a car with very few upfront costs. You often don’t need a down payment (or if you do, it’s fairly low), and your monthly payments are lower. Depending on your individual situation and the law at the time, your taxes may also be affected for the better. According to Edmunds.com, you could pay as little as half the sales tax during the lifetime of your lease than you would if you purchased the same new vehicle.
Lease contract amount doesn’t change, even after an accident: If you get into a car accident and the vehicle is totaled, you’ll still be responsible to pay back the full amount specified in the lease contract. Even if the insurance company gives you back less than what you owe to the dealership, you’ll be responsible for the full amount. If you do go with a lease, it is recommended that you buy gap insurance, which covers you for the difference you would owe the dealership in the event of a major accident. The gap insurance that covers any difference between accident reimbursement and lease contract amount is included in your lease!
Limits on time and distance: In many instances, the lease agreement will be for 3 years / 36,000 miles. What that means is that if you go over that 36,000 miles prior to the end of your contract, you may be required to pay a penalty for every mile over 36,000 that you drive. If you drive well over 12,000 miles a year – the average that a typical lease permits – you may be better served purchasing a vehicle. Leasing can easily be customized for as little as 7,500 miles per year or as much as 15,000 – 20,000 per year; keep this in mind when discussing your needs with your Mercedes-Benz of Buckhead leasing specialist. Leasing a car means having to budget your miles. If you do a good job of budgeting your miles and stay well under your yearly allotment, you don’t get any credit for the miles you didn’t put on the car, so it’s best not to over-estimate too much either!
The Mercedes-Benz of Buckhead First Class Lease Difference: We offer options like our Star Elite program that provide excess mileage waivers (conditions may apply; inquire with your salesperson). There are also discounted pre-purchase options if you know you are going to exceed your mileage allowance.
Stuck in lease after signing: Another common complaint with leasing is that once you sign a contract, you’re locked into that lease until your term expires. The truth is that you can buy out your lease at any time, just like paying off a loan ahead of schedule. Be aware there may be additional charges for early payoff or termination, and all of that information will be disclosed in your lease documents.
The Mercedes-Benz of Buckhead First Class Lease Difference: We frequently offer a Loyalty Accelerator Program, which varies with each model of vehicle and is subject to change without notice. These programs are structured to allow you to exit your lease and get into a new Mercedes-Benz vehicle before the scheduled conclusion of your term. This may allow you to trade as many as three to five months early, saving those extra payments! Please ask your sales professional for current details on the model you are considering.
Being upside down: Frequently, your current vehicle may have a higher loan balance than it does value or equity. This is referred to as being “upside down,” just like in real estate. When you are upside down on your car, selling it may well wind up costing you money! A possible advantage of leasing is the ability to refinance a portion of this negative equity into the structure of the new car lease, keeping your up-front monies and monthly payment within your target budget.
The Mercedes-Benz of Buckhead First Class Lease Difference: As mentioned above, we frequently offer a Loyalty Accelerator Program, which varies with each model of vehicle and is subject to change without notice. By exiting a lease three to five months prior to its conclusion, any negative equity in your lease for those extra months would not be paid. Translation: free money! Please ask your sales professional for current details on the model you are considering.
Leasing costs more over time: All thing being equal, for a given auto, the monthly payment for a two-year lease is lower than a loan payment for a purchased vehicle. But when you compare the numbers, somewhere in the time between 24 and 36 months, leasing begins to cost the same as buying. Leasing typically only costs more than buying if your lease term is four years or more. That’s why most dealers today don’t even offer a 5 or 6-year lease – it doesn’t make good financial sense for the customer.
The reason is that if you keep a car after paying off a loan and continue to drive it for a few more years, the purchase cost is spread over a longer period. When you run the numbers, the cost of leasing a new car every two years – which amounts to five two-year leases over a period of 10 years – can be more than the total cost of buying one car and driving it for 10 years.
Limits on mileage: Typically, lease contracts restrict the number of miles you can drive to between 10,000 and 15,000 miles per year. If you exceed this limit, you're charged excess mileage fees of 10 to 25 cents per mile for every mile you are over the limit at the end of the lease. Underestimating your mileage at the time of the lease by just 5,000 miles could cost you an additional $1,250 over the entire life of the lease.
The Mercedes-Benz of Buckhead First Class Lease Difference: We offer options like our Star Elite program that provide excess mileage waivers (conditions may apply; inquire with your salesperson). There are also discounted pre-purchase options if you find yourself driving at a rate that would exceed your mileage allowance.
Excess wear and tear: Some leasing companies require that you return their cars at the end of the lease with no more than "normal wear and tear." You'll pay extra to repair any excess wear on tires, brakes, scratches, and door dings at lease end.
The Mercedes-Benz of Buckhead First Class Lease Difference: You may not be liable for every little thing when returning your vehicle. We offer the First-Class Finish®, which includes The Credit Card Test. Most vehicle damage happens to the exterior or interior fabric and trim. At Mercedes-Benz Financial Services, we've created a simple yet comprehensive way to evaluate when such wear and use becomes damage. Basically, if the exterior damage can be hidden with a credit card, it passes the test and is not chargeable damage. Guidelines for tires, glass, and other vehicle components are equally fair. Three months before your lease ends, we'll send you "The First-Class Finish - Your Lease-End Guide," which explains the entire process in detail.
Termination penalty: It has been said that lease contracts are purposely written to discourage and even prevent early termination. One of the biggest deterrents is the early termination penalty, which charges a fee based on the time left on the contract. The earlier you terminate a lease, the higher the penalty you will pay.
The Mercedes-Benz of Buckhead First Class Lease Difference: With our First-Class Finish, the lease termination fee is a flat $595 regardless of the value of the vehicle or the amount due at the time the lease ends. Also, as an added incentive, Mercedes-Benz of Buckhead will customarily waive this fee if you choose to lease (or purchase) another Mercedes-Benz vehicle from us!
Successful and affluent people pour money into assets and investments that go up in value, not in assets like cars that tend to only ever depreciate in value. Warren Buffet, for example, drives around a used pick-up truck during much of his personal time and has lived in the same house that he bought about 30 years ago. Buffet is as wealthy as he is due in no small part to due his understanding that possessions are not necessarily the most sound investment. Similarly, leasing a car doesn’t build financial value, nor does it eat up hard-earned money that would be otherwise better spent, invested, or saved elsewhere.
On the other hand, to some people, their car is an important part of their life. They love the feel of driving around a new car, and they love the convenience of not having to worry about maintaining an older vehicle. Leasing a car can be akin to renting a house; you’re paying money out each month, none of which builds equity for you. But consider leasing a vehicle more like a rent-to-own plan. You can enjoy the benefit of a new vehicle with less money spent out of pocket, and if you love it and want to keep it, a significant portion of what you have paid goes towards the purchase price – and it’s your choice!
If you keep your car for five years or longer, or as the saying goes “until the wheels fall off," then leasing might still be a good option for you. Leasing would allow you to have a lower up front cost, lower monthly payments, and essentially defer your purchase of the vehicle until the end of the lease term at a price you’ve already agreed to.
Whether you buy or lease a car is a highly personal decision. Like every issue, there are pros and cons. Consider about your passions, your finances, and your personal situation carefully before making a final decision. And remember, we are here to help you with more information every step of the way.